How Instacart Outmaneuvered Amazon In The One-Hour Grocery Delivery Business

When Amazon acquired Whole Foods for $13.7 Billion in August 2017, it immediately opened up all the other grocery store partnerships for Instacart.

The law of unintended consequences was in full effect, as it sparked a surge of interest from other chains that wanted to work with Instacart to clean Amazon’s clocks.

At that time, Amazon’s revenue was $177.9 billion, a 31% increase from 2016 so it was a juggernaut but nowhere near as big as it was to become by 2023.

The Incumbent’s Strength Becomes Its Weakness

Instacart executives wasted no time exploiting the opportunity to outmaneuver the runaway train that was Amazon which would later dwarf the online sales revenue of Walmart, Costco, Target, Best Buy, and Lowe’s in 2020.

Instacart quickly expanded its partnerships, adding more than 100 new retailers and 4,000 new stores in 2017. Since then, Instacart has become one of the largest online grocery platforms in the U.S. and Canada, with more than 500 retail partners, 45,000 stores, and 9.6 million customers.

Beating Amazon At Its Own Game

Many tech startups model themselves on Amazon’s approach to business; few actually try to reverse engineer Amazon and compete with it in a massive addressable market where the incumbent is struggling to overcome channel conflict with other grocers.

Amazon made a strategic decision to become a major competitor in the grocery industry, with its own brands and concepts such as Amazon Fresh, Amazon Go, and Prime Now rather than to remain a neutral brand-agnostic e-commerce platform.

So in a deal that was initially applauded as a game-changer for the grocery industry, Amazon’s acquisition of Whole Foods is now widely viewed as a roadblock to dominating the broader industry.

Trouble In Paradise 

Especially when we take a moment to consider that some analysts argue Amazon is tripping over itself trying to leverage the potential of Whole Foods, and the integration of the two companies has been slow and challenging.

First, there are significant cultural differences that need to be seamlessly woven together. Threading that needle will likely be painful and expensive for at least the next three to five years.

It’s likely that Amazon’s data-driven, performance-oriented, command-and-control corporate culture clashes with Whole Foods’s customer-driven, loyalty-focused, and decentralized culture.

Signs that the silos are yet to be raised, are already evident. Amazon’s physical retail segment revenue, predominantly sales at Whole Foods, has grown by just 10% since 2018, which is half the rate of Kroger Co. during the same time period

Meanwhile, Instacart isn’t Amazon’s only concern. It faces fierce competition from other online and offline grocery retailers like Walmart, Costco, and Target.

These brick-and-mortar retail titans have been investing heavily in their digital capabilities, delivery services, and pricing strategies, to attract and retain customers.

Walmart invested more than $11 billion over the last two years in building automated warehouses, expanding its delivery network, and enhancing its inventory management systems.

The ROI was immediately apparent as its online sales grew 97% in the second quarter of 2020 prompting  Walmart to invest an additional $9 billion over a two-year period to upgrade and modernize its U.S. stores.

Upgrades include improved layouts, expanded product selections, and new tech enhancements like QR codes that offer information on Walmart’s online offerings such as Walmart+, Walmart Pay, and Walmart Grocery.

Customers can scan the QR codes with their smartphones to access these services or learn more about them. Next, new signage and more integrations with the Walmart mobile app are designed to make it easier for shoppers to find exactly what they need without getting lost in a retail maze wandering, spending frivolously, and losing track of time.

In relative parity with Amazon at Whole Foods, the app also allows customers to scan and pay for their items without going through a checkout lane.

So when Walmart’s biggest competitive threat moved into the grocery and same-day delivery space just two years earlier, it seized the opportunity to partner with Instacart.

Now it offers same-day delivery sometimes within a 60-minute window, answering the consumer’s cry for instant gratification in nearly 200 Walmart stores throughout North America.

In 2020, the two companies expanded their partnership to compete with Amazon Prime and offer same-day delivery across Canada, inviting customers to order from Walmart through the Instacart app or website and receive their items in about an hour.

The Squeeze Play Is In Full Force

Costco piled on next, partnering with Instacart to offer same-day delivery of groceries and other items, including prescriptions, from nearly 200 Costco locations across the U.S. and Canada.

Ironically, the partnership started in 2017, the same year that Amazon pigeonholed itself as a competitive grocery retailer.

Although, in the interests of intellectual honesty, it is highly unlikely that Costco would have partnered with Amazon under any circumstances.

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